Dual Status Filing Question

[user17591658047]

Hello, this is my first year filing US taxes as I became US resident in June 2024. Never been in the US before.
I did not have any source of income in the US for entire 2024. My only income is foreign income - India Govt Pension and Bank Interest. I am a senior and retired. I have couple of questions.

1) Do I need to file 1040-NR for the part of the year I was non-resident? Again, no US source of Income at all. In other words, what would I enter in the 1040-NR when no US income?
2) I will file 1040-SR for the remaining part of the year as a Resident. Can I take the entire standard deduction since this is part year or does it have to be partial? If no, then how do I adjust or enter it in turbotax?

Thank you!

[Opus 17]

What makes you a US resident for 2024?  Substantial presence test, green card, or something else?

@pk

[pk]

@user17591658047 , Namaste ji

(a) Please answer the questions asked by my colleague @Opus 17 . We need to know this because your residency start date  depends on when your first  day of legal presence in the country.  So when did you enter this country ? And with which visa ?

(b) If indeed  your  start of residency  is NOT  Jan1st. then generally you cannot take the standard deduction ( because it does not allow allocation) and must use itemized deduction.

(c) Need more details on your pension -- generally distributions from public/ govt. funds  is taxable only by the distributing country.  So is your pension from civil service ( central like IAS, IFS, IPS etc. or State Govt. services  etc. ) ,   defense services  etc. or what?

(d) Have you already filed the Indian ITR and were you taxed on your "pension" ?

I will circle back once I hear from you --yes ?

Is there more I can do for you ?

Namaste ji

pk

[user17591658047]

Green Card in June 2024

[user17591658047]

hello @pk
a) Received green card and entered US in June 2024.
b) Since its not Jan 1st, I understand that I need to go with itemized deductions.
c) Pension is from government of India and taxed in India. Is this taxable in the US?
d) Yes already filed ITR and have paid taxes on pension and the interest income.

Thank you for your help. Any additional info needed let me know.

[Opus 17]

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@user17591658047 wrote:

hello @pk
a) Received green card and entered US in June 2024.
b) Since its not Jan 1st, I understand that I need to go with itemized deductions.
c) Pension is from government of India and taxed in India. Is this taxable in the US?
d) Yes already filed ITR and have paid taxes on pension and the interest income.

Thank you for your help. Any additional info needed let me know.

---

At the risk of being corrected, it is usually the case that, if there is a tax treaty with the other country (and you properly pay that country's taxes), then government social/retirement benefits that are similar to US social security are only taxed in the home country, not the US.   If you have other world-wide income (investments, private pension, part-time job) that will be taxed in the US, but not your Indian government benefit. 

I don't think you need to file a US return at all if you have no other income.  

[user17591658047]

@Opus 17 

"I don't think you need to file a US return at all if you have no other income." - Is this statement correct?. IRS website says otherwise - Filing tax return on worldwide income and taking any tax credit on 1116.

I can probably exclude pension part but not interest income.

@pk can you chime in too please? 

Do I need to file 1040-NR for the part of the year I was non-resident? Again, no US Income in 2024. In other words, what would I enter in the 1040-NR when no US income?

Thank you!

[pk · Accepted solution]

@user17591658047  agreeing with my colleague @Opus 17 , under article 19 para1, your govt. pension for services rendered to India, the pension distribution is only taxable by India

Your passive earnings  ( interest / dividend etc. ) are however taxable in US.  India may also tax these incomes.

If India taxes these incomes and you wish to avail of  foreign tax credit, then you have to file a return. Additionally if the gross world income ( exclusive of  Govt. pension) is above the deduction ( itemized ), you probably have to file a return.

My general sense is that  ( especially given the current political environment) it is probably better for you to file a 1040 return showing your world income ( pension, passive income etc. ), excluding the pension income ( as  negative "other" with notation  " US-India Tax Treaty article 19 " and claiming Foreign Tax Credit ( if there is any passive/interest earning taxed by India ) --- note that because of  US and India tax calendars being different , you may have allocate the incomes according to US tax Calendar.  This should result in nil to very little  US taxes.

Assuming that your GoI pension and interest earnings are deposited into an Indian bank account, as a US person ( citizen/GreenCard/Resident for Tax purposes ), you do come under FBAR  ( ONLY on-line form 114 at FinCen.gov) and FATCA  ( form8939 along with your  form 1040 ) -- see requirements  here  -->

Comparison of Form 8938 and FBAR requirements | Internal Revenue Service

I am assuming from your post so far that  you are living here with GreenCard with  family and therefore may not be moving funds between India and US.  However, note  that  any movement of US$10,000 or more  ( domestic or international) always result in SAR ( Suspicious Activity Report )  being raised by US bank as a matter of course -- no impact on anything.

Is there more one of us can do for you ?  You can post here or PM me ( just NO PII -- Personally Identifiable Information)

Namaste ji

[user17591658047]

@pk 

Your detailed reply was very helpful. Thanks for the additional info about FBAR and SAR. 

Can you please clarify one question - Do I need to file 1040-NR for the part of the year I was non-resident? No US Income in 2024. In other words, what would I enter in the 1040-NR when no US income?

[pk]

@user17591658047 , In my view, since  you were not present during the Non-Resident portion of the year  NOR had any US sourced income,  it serves no purpose ( other than paperwork ) to fill out  1040-NR with all zeroes and having to paper-file ( with  "Dual Status Filer" legend  on the first pages of each of the 1040s ).  

Does that cover your query ?

[Opus 17]

@user17591658047 

I do need to note here, the procedure(s) for reporting the income and then subtracting it back out.

The correct procedure would be to enter an item of "miscellaneous income" in the amount of the foreign social security.  This would go on Schedule 1 line 8z with a notation like "India social security" or whatever the name.  Then, enter an item of negative income to offset the Indian social security. This goes on schedule 1 line 24z, you can use the treaty language suggested by @pk .

However, you can only access schedule 1 line 24z by making a manual entry using Forms mode of Turbotax installed on your own computer from a CD or download (the desktop version). 

If you are using Turbotax online, you have to enter both the miscellaneous income and the negative offset in the same place, "other miscellaneous income".  This places both the income and the offset on line 8z.  This is not technically correct, but seems to be an acceptable answer and has been recommended in the past by Turbotax employees.  (I think they should allow online entries on line 24z, but I don't get to make the rules.)

I suppose it is a benefit in the long run, to file a return that says...

8z. Indian pension +$10,000

8z. Pension income excluded by treaty -$10,000

Adjusted gross income zero, taxable income zero, tax zero 

...so that you have it officially on record that you claim the treaty benefit.  But it seems a bit silly.

Of course, if you have other worldwide income that is not the government pension, that is taxable in the US and you should file a return, whether or not you can claim a credit on form 1116.  Only the government social benefit is completely tax-free in the US.